Parmalat’s Political Spat

By Gilles Castonguay

After making a fuss about defending Italian champions of industry, it turns out that the Italian government is willing to compromise.

When France’s Groupe Lactalis SA first appeared on the scene in March, building up a 29% stake in dairy group Parmalat SpA, the government sounded the alarm amid fears that yet another Italian company would fall prey to a French predator.

Luxury goods group LVMH Moet Hennessy Louis Vuitton had bought Bulgari SpA, insurer Groupama SA had shown interest in Fondiaria-SAI SpA and Electricite de France SA wanted to take control of Edison SpA.

With Lactalis’ move on Parmalat, the government went into action.

It called on the country’s bankers and industrialists to save Parmalat and passed measures to help them do so. Parmalat was allowed to postpone its annual meeting to give it more time to build up a defense. State-run lender Cassa Depositi e Prestiti, or CDP, was given the go-ahead to change its statute so it could invest in nationally strategic companies.

The government also started work on a creating a kind of shield to protect from foreign takeover Italian companies that were deemed strategic.

However, after weeks of talks, Intesa Sanpaolo SpA, UniCredit SpA, Mediobanca SpA and other potential members of a consortium to defend Parmalat have yet to come up with a definitive plan.

With Lactalis’ surprise offer Tuesday to buy the 71% of Parmalat it does not already own for €3.4 billion, they are under even more pressure to work something out.

As far as the financing is concerned, Italian news reports have spoken of €500 million coming from the banks, €500 million from an industrial partner and another €500 million from the CDP.

Another €1.5 billion would come from the banks in the form of loans, say various reports.

But a Milan analyst said it is no longer a question of whether they can agree on the financing and organize themselves in time to make a rival offer.

It will be politics that will determine the outcome, he said.

At a news conference after a summit meeting with French President Nicolas Sarkozy in Rome Tuesday, Italian Prime Minister Silvio Berlusconi said he did not consider Lactalis’ approach as hostile.

Mr. Berlusconi said he favored market competition, adding that the shield being set up by his government to protect strategic companies from foreign takeovers would be fair. He welcomed an arrangement in which Lactalis would be joined by an Italian partner in Parmalat’s ownership structure.

Mr. Sarkozy, who came out in favor of Bank of Italy Governor Mario Draghi becoming the next head of the European Central Bank, also spoke in favor of Italian-French mergers to create companies that could compete better globally.

After expressing an interest in the telecommunications operator, Spain’s Telefonica SA eventually agreed with Italian financial partners, including Intesa Sanpaolo, to form a holding company in 2007 that owns a controlling stake in it. Although the move helped Telefonica prevent Mexican rival America Movil SA from gaining a stake in Telecom Italia, it has yet to produce any returns.

The investment Telefonica made in the holding company, Telco, has since lost about half its value.

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